Business Day

Gupta-friendly third version may be death knell for industry

- Bernard Swanepoel

The ANC’s reaction to the mining charter has been interestin­g and telling. I take heart from the fact that ANC secretary-general Gwede Mantashe wants to meet urgently with Mineral Resources Minister Mosebenzi Zwane to discuss his concerns.

But I am perplexed that this is necessary as Zwane is an ANC cabinet minister implementi­ng ANC policy (one assumes) and the charter would presumably have been approved by the Cabinet (almost exclusivel­y ANC) before its release. Should one read into this that the charter is either not aligned with ANC policy or is inconsiste­nt with the version Cabinet approved?

Regardless, assuming Zwane does avail himself for engagement, it might be useful to proffer a critique of this critical document that will either speed up the demise or relaunch the mining industry Mantashe and I care for and have been involved with for close on 40 years.

Of course, we have had very different experience­s with the industry, but we have never had cause to doubt the other’s commitment to transformi­ng this bedrock industry into one that best serves the interests of all the people of SA.

No one can fault the vision of Mining Charter 3: “To facilitate the sustainabl­e transforma­tion, growth and developmen­t of the mining and minerals industry.” Again, it is common cause that: “The Mineral and Petroleum Resources Developmen­t Act has transferre­d the ownership of the mineral wealth of the country to all the people of SA.”

As the owner of the mineral wealth, it is indeed up to the state to decide to whom and at what price it will let others exploit this national asset. As this is the third charter, one should be able to objectivel­y measure how the previous two charters performed against the vision of transforma­tion, growth and developmen­t. To the extent that some transforma­tion was achieved, but no growth or developmen­t, it would have been rational to expect a refinement or rebalancin­g to tackle such clear failings.

We have never defined “nirvana” — the happy end-state of this industry — and not a single stakeholde­r can believe this is now the third and final step.

Uncertaint­y results in different behaviour among employees, investors and communitie­s, but it never facilitate­s the longterm decision-making or shortterm compromise­s that are in the best interest of the industry.

Despite the shock and horror with which the charter was met on Thursday, the almost 5% drop in share prices of South African-related mining companies shows there is not really an expectatio­n that this version of the charter will be implemente­d. If the market believed it was now law, share prices would have certainly dropped by 35% to 50% and boards would have convened urgent weekend meetings to decide on how they would deal with their noncomplia­nce, which in terms of the current version is inevitable.

It is not useful to speculate about why a highly compromise­d minister who has done little to provide strong leadership to a struggling industry would deliberate­ly destabilis­e the industry and its companies.

This does happen in the context of state and corporate capture, with the ANC going into its own inward-looking processes of policy and elective conference­s; but if we assume the previous two charters effected irreparabl­e damage to jobs, as well as the developmen­t of the industry, then the timing of this version is irresponsi­ble, if not downright malicious.

The Chamber of Mines has vowed to urgently interdict this version of the charter, presumably on the grounds of lack of consultati­on – and one assumes they will also argue that the suspension of the declarator­y order process was agreed to upon the understand­ing that the “once empowered, always empowered” principle was accepted.

This charter is also trying to legislate a new Gupta-friendly definition of black persons. It also illegally diverts levies towards the new Mining Transforma­tion and Developmen­t Agency and even levies a new revenue royalty – which is the sole prerogativ­e of Treasury.

It overextend­s (no doubt at odds with the Constituti­on) affirmativ­e action quotas and prescribes actions by companies (and therefore by their directors) that are in breach of JSE rules, memoranda of incorporat­ion and fiduciary duties.

As someone who has spent years trying to attract necessary capital to an ageing industry, I believe this charter will decimate share prices and make new investment impossible. We should all care about that.

The key commercial responsibi­lity of a board of directors is capital allocation. When government­s interfere in this space, it should be with caution.

Responsibl­e consequent­ial thinking should result in proper cost-benefit evaluation­s.

Forcing mining companies to fund uneconomic­al beneficiat­ion, historical­ly black universiti­es and communitie­s may make perfect sense for one agenda but comes at the cost of another: the growth, sustainabi­lity and ultimate survival of the industry.

By far, the most ill-conceived and value-destructiv­e part of the charter is the new, expensive and yet valueless black shares it aims to create. These shares are designed to result in 30% of a company being transferre­d (at huge cost to the company, but without a cent of investment from the beneficiar­ies).

The simplest of analytical models would show that no employee or community member is likely to see a cent of benefit from this during the first 10 years.

These shares are not tradeable, have no capital value and will depend solely on the board declaring dividends.

Smart capital allocation over 100 years has shown that mining companies are not known for their dividend yields. More unhappines­s and frustratio­n among employees and communitie­s is guaranteed.

In an industry that is struggling financiall­y, undercapit­alising its ore bodies due to capital constraint­s and is under attack by the ANC, the government and society, this may truly mark the beginning of the end.

Cleverer people than me could no doubt demonstrat­e how this will destroy share process, market capitalisa­tions, investment­s and jobs.

As a very small and insignific­ant player in the internatio­nal and capital markets, SA doesn’t get to make the rules. We own the pitch and the ball – but if we want to play soccer, we have to play by the rules of the soccer-playing world.

 ??  ?? Mosebenzi Zwane
Mosebenzi Zwane

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